Breach of Contract: Ontario vs. IBM

The government of Ontario has locked horns with tech giant IBM in a breach of contract lawsuit launched recently in Superior Court by the Ministry of Transportation.

The lawsuit revolves around the terms of an $18.9 million contract based on a tender won by IBM to retool the online licensing and registration system used by freight carriers and bus companies. A mere fourteen months into the nineteen-month project, the Ministry fired IBM by way of a letter providing written notice of termination and named “substantial failure by IBM in the performance of its obligations” as the chief cause.

Among the specific allegations made by Ministry staff,

  • That IBM misunderstood the project terms
  • The company had too few staff working on the file which created delays
  • “Little or no work of value had been done between January and May 2013.”

The MTO ponied up $1 million for work completed and then in April 2014, the province sued IBM for $18.1 million in damages, the maximum which was available under the contract. The Ministry says that the actual damages come to over $32 million and that figure may still go up.

In answer to the claim, IBM filed a counterclaim that denies all allegations and sues for breach of contract. In their claim, in which they ask for $35 million in damages and another $9 million for work completed, they allege,

  • The Ministry “fundamentally” changed the terms of the deal after IBM won the contract. IBM claims that demands for customization only came after the contract was won.
  • They say the Ministry acted “with a lack of good faith and in a manner that completely eviscerated the true nature of the contract.”

None of the allegations made by either side have been proven in court.

What’s in a Contract?

Clearly, this case revolves around a fundamental understanding of what the project involved. There are several other points to be kept in mind,

  • Substantial failure to complete work under the terms of a contract is typical grounds for its dissolution.
  • The wording of the document – and which side drew it up – will be the basic elements such a case would examine. Were such matters specified or implied?
  • Is there room for the specific details of execution of a contract to change along the way or are they fixed?
  • Were there benchmarks or measures of progress that the company failed to fill? How is a reasonable output of work determined and by whom?

Before You Sign

Whether you’re working on a multi-million dollar government contract or your own employment contract with a corporation, there are many issues and details to consider. The best time to do that is before you sign on the dotted line. You’ll need the help of experienced breach of contract lawyers.

If the deal goes south, you only have a limited time to take action. If you think your rights under a contractual agreement are being disregarded contact Petrillo Law today or call us (905) 949-9433 for a free consultation with an experienced contract lawyer.  We look forward to hearing from you.

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